Dick Armey speaks to a Lansing audience on May 24 at a Mackinac Center luncheon.

(The following is an edited version of remarks made on
May 24, 2005 in Lansing by former U.S. House Majority Leader Dick Armey at a
luncheon hosted by the Mackinac Center for Public Policy.)

Good afternoon. I am
Dick Armey, and I am from Dallas, Texas. I am a free-market economist, and I
am very proud of the fact that somehow, when I was young, I discovered the
discipline of economics and later had the privilege of becoming an economist.
Even after having been a member of Congress and a U.S. House majority leader, I
still think of my self-definition as, "I am an economist."

I watch this electronic age developing around us. The
marvels of this electronic age should be astounding to all of us. If you study
economic history, the first economic revolution was the agricultural revolution,
and from that followed the industrial revolution. Well, I became convinced
several years ago that we’re really now in the electronic revolution.
And just like during the agricultural and the industrial revolutions, there are
massive transformations in the structures of economies.

I am reminded of something my father always used to say. My
father was an old-fashioned guy who believed in such things as practical
American genius. His point was, if you don’t keep up with progress, you get left behind. And his point was significant: If you do get left behind, it is your own fault. My father wasn’t much of a person for thinking in terms of someone else pulling your fat out of the fire. …

I became convinced, watching this marvelous world of
discoveries going on around us and the speed of change taking place, that there
are going to be massive transformations of economies. If you study economics at
all, you know about
Joseph Alois Schumpeter’s great theory of creative destruction. Remember,
the fundamental problem of any economic system — any community of
production and consumption — is that you must allocate scarce resources among
competing ends. The fact of the matter is that resources must be allocated away
from losing propositions, so that they can be redirected to winning
propositions. The entrepreneur, the creator, the discoverer — this is the
person who is always looking forward, saying, "What’s new coming down the line?
How can I be a part of it, and how can I get the resources from what has
passed?"

Governments have a tendency to look backwards, trying to
preserve the past, because the past is where the existing special interests
are vested, and governments tend to serve them. Well, what happens is that
governments tend to stand in the way of progress, because they impede the
process of creative destruction that takes the resources away from the things of
the past and allows them to be redirected to the future. And governments that
are not quick-footed in keeping up cause their own economies to fall
behind.

So I realized that this wonderful electronic revolution was
going on all around us and that governments — whether state, local or national
— could do very little to make it happen. They are capable of doing a
whole lot to screw it up. In fact, "Armey’s Axiom No. 1" is this: The market is
rational; the government is dumb.

Governments are fundamentally, systemically dumb. I don’t
mean to be unkind when I say that. The fact of the matter is that real people,
in the ordinary business of life, pursuing their own interests and those of
their families, are able to do those things because they are smart.

Why are they smart? Because they know what they want; they
know what they can do. They are very quick and able at allocating their scarce
resources among competing ends and directing themselves in a matter that is most
satisfactory.

Governments are inherently stupid, because they are not
doing for themselves, but are doing for other people. The first problem
of all governments is that they don’t know what they are trying to do.

I always laugh at people who say, "The government will
provide for us." Well, let me ask you this: When was the last time you bought
your spouse the right birthday present? There is nobody in the whole world
who knows your spouse as well as you do or loves your spouse as much as you do. … There is nobody in the whole world who more grievously suffers as immediately the consequences of getting it wrong. And you can’t get it right. You have every incentive in the world — love and fear — riding on the right decision. And you can’t get it right.

If you take that lesson and apply it back to the notion of
government taking care of us, why would you expect a bunch of people in the
state House to get it right? That is why politicians will fundamentally revert
back to doing those things they know how to do, which is to work for themselves
— just as everybody else does.

But what happens is that governments screw things up
because governments look backwards. Governments are inherently dumb in terms of
the rationality of choice.

I don’t mean to say these are not good people. They are
good people. They are able people. They are responsible people. They are decent
people — on either side of the political spectrum.

But it is a systemic avarice, not individual avarice.
Although you might say there are some bad apples in Congress and the
Legislature, there are bad apples to be found everyplace. Systemically,
governments are dumb because governments don’t know what governments are
supposed to do.

I could ask you here to give me a definition of the public
interest. If I have 50 of you lined up, I would get 49 or 61 different
definitions.

Adam Smith, by the way, best defined the public interest (as he did most
everything best) in 1776. And don’t you think it is a marvelous accident of
history that "The Wealth of Nations," the treatise that created the discipline of economics, was a treatise on free enterprise written in the year of
the work of the greatest historical experience of free enterprise in the history of the world? In 1776, in "The
Wealth of Nations," Adam Smith said the ultimate economic activity is
consumption. To the extent that the government intervenes in the affairs of
commerce, it should do so on behalf of the consumer. … That is still, for me,
the best definition of the public interest.

Take a look, then, at your public policies, and tell me the
extent to which public policy is guided by that notion. How many times does
public policy that affects commerce find itself constructive in the interest of
some entity other than the consumer? Quite often, it gives advantage to one
producer over another.

What I see happening in Michigan is a good example. You
have a backward-looking government that is impeding the ability of your state’s
economy to get with modern times. …

The automobile industry has a great tradition in this
state. But the future of Michigan’s economy cannot be the automobile, as it
maybe has been in years past. The future, the growth, if you look at the world
economy today, is in modern telecommunications, electronics, computers, the
Internet.

My wife got a marketing call the other day. It cracked me
up. I said, "Honey, that call probably came from
Pakistan." We’ve got modern communications centers so great now that people
who do telecommunications make calls from overseas. Yet Michigan’s regulatory
laws are so antiquated that you get restrictions on your ability to make phone
calls within the state.

Now, if a business is looking to locate in Michigan, its
officials calculate the cost. They say, "I have to do a lot of marketing in
Michigan. I am going to have a flood of phone calls in Michigan. My business
depends on my being able to do that. I am going to India."

From anyplace in the world, they can set up their whole
business, and where telecommunications are concerned, they can communicate more
quickly, more reliably and with less cost to your Michigan households and
residents. Those are jobs that could be going to Michigan citizens; that’s
growth and development.

I have gotten very interested in Michigan, because your
state is about to begin the process that we’re completing in Texas of
telecommunications reform. You’ve got to have a force within the state that
goes to a legislator and says, "This is a new and different time."

My wife and I are building two new homes. She is in charge
of all things related to color and design. (I am not authorized. The builder
comes to me, and I say, "I am not authorized.") I’m in charge of all things communications.

I can’t get
what I had —
DSL. I can’t get DSL because I’m more than three miles from the switch. So
I’m working out my options, and they aren’t all that bad. I found a competitive
local carrier that is going to bring fiber optics to my house. I’ve got to pay
for it — that’s the bad news. But if you get fiber optics to your house, you’ve
got all the telecommunications capability you will need for the rest of your
life.

In Texas, I can afford it. But who is going to be willing
to do that here in Michigan? Your Baby Bells aren’t going to do it, because
the minute they build capital structure under existing laws, all the free riders
might jump on their capital. They’ve got to sell access to that capital
structure to their competitors at rates that are more favorable than what they
can charge their own customers (if they could get it), and their competitors use
this capital to undercut them. So what we are talking about are
telecommunication laws that are antiquated.

I grew up in rural North Dakota. I remember when bringing
in electricity or bringing in telephones was such a difficult proposition that
you had to have government support and all kinds of regulations regarding
universal services.

You don’t need those kinds of regulations now. What those
regulations do is basically say to providers: "Stand back. Don’t put your time
and money and capital and discovery into this, because you can’t recover your
investment, and you’re likely to have to share your equipment."

I created a word back in 1977, when I wrote my textbook on
microeconomics. … The word is "octopoidal." The
telecommunications industry is, to a large extent, octopoidal. Capital must
extend like the tentacles of an octopus out to the customers. How do you get
people willing to do that?

As you review telecommunications law in Michigan, you have
the opportunity to bring your legal structure up to the promise of the
electronic revolution in the 20th century. But if you’re going to have the same
telecommunications regulations that you had after World War II, you are not
going to be competitive with the rest of the world.

Michigan is a great state. It’s got one of the best hockey
teams, although you’re not doing very well in football — and that’s fine with
me; I’m a Vikings fan. But why should Michigan be behind? Why should your
unemployment rate be so deplorably high compared to other states?

For years, I was on the House Labor Committee, and I kept
joking to your representatives that you ought to keep these labor laws you have in
Michigan: We love all these businesses coming down to Texas. Businesses
like a right-to-work state like Texas.

Generically, you’ve got a problem in this state. I mention
labor laws,
but if you look at taxes and regulations, you’re talking about a cost to do
business. When a business looks at whether to locate in Michigan, they are going
to measure the cost. The additional costs that rise from higher taxes and
stricter regulations can amount to a lot of money. So a business is going to go
to Texas instead.

Telecommunications is critical because, more and more,
nobody is going to be able to grow a business except on the basis of their
comprehensive communications with the rest of the world. The cutting edge of all
growth in the world economy has been, and will continue to be, electronic.

Telecommunications is the aorta for all of the electronic
marvels that are driving the world economy. Telecommunications law can be a
great liberator. We are quite optimistic with the direction in which we are
going in Texas, and that direction is deregulation.

Texas is ahead of Michigan. You’ve got to catch up. The
fundamental principle should be deregulation — maximizing the incentives to
discover, create, invest and build. Nobody is going to invest their money here
if state law says they’ve got to turn it over and let another guy ride free on
their capital.

(Mr. Armey then
took questions from the audience.)

Q: There are a lot of proposed mergers among
telecommunications companies in the news. What effects do you think this will
have on the economy, and what effect should that have on the regulatory
environment?

A: Well, "Armey’s Original Axiom" was, "Given the
size of the market and economies of scale, the market will always generate the
optimal number of firms operating at the optimal size." And telecommunications,
given the nature of the technology, is always going to promote integrations,
mergers, takeovers and so forth.

This is not new. Go back to 1952. There were probably 30
separate automobile companies in this country. Now we are down to The Big Three.

There is a tendency to believe that mergers are inherently
competition-diminishing. I don’t buy that. I believe that the optimal number of
firms can be one, given the right conditions of market size and economies of
scale. With all the creativity in telecommunications, I prefer to sit back and
watch all these mergers take place.

Q: You have a public service commission in Texas
that regulates and dictates to these companies what they can and cannot do. How
do you work with them?

A: Well, you have to work with them, obviously. The
commission is responsible for implementing the laws that are written by the
legislative body.

So, you start with that. I mean, everybody cusses the IRS.
The poor old devils in the IRS, bless their hearts — they are just trying to make a
living. But we write insane tax law and tell them to enforce it, then we cuss
them when we get audited. It’s the same thing with the commission. The
commission can only work within the bounds of the law.

I have argued for years that legislators leave a lot of
loose ends in the law and therefore leave a lot of latitude for commissions. I
promise you, if you give me a position of public responsibility and authority, I
am going to work for myself to some degree or another. Do you think these
commissioners aren’t going to build their empire? So, the legislative body has
got to define the limited jurisdictional range of the commission.

I used to call it "the legislative aftershock." Remember
Michigan Rep. Bill Ford? He didn’t like me much. One time, when we were trying
to work out some details of a law, he said, "Oh well, just leave that to the
agencies." It hit me how many times we just don’t want to do the hard work of
typing out the language and instead leave it to the agencies to do it. That
gives the agencies latitude.

My view is that our regulatory commission is not inherently
a bad thing, and that it possibly may be a useful thing, if it is properly
franchised in the law that it is asked to administer.

Q: Please explain to members of the Michigan Public
Service Commission and some legislators the difference between overregulating
telecommunications and what is truly in the public interest. There is a great
deal that they do, well intended though they may be, under the rubric of
consumer protection that is, in fact, contrary to that.

A: … Government excess is born out of two audacities. One says,
"The people aren’t competent, therefore we must protect them." This gets me
singing, "Mr. Big Shot, who do you think you are?"

The other audacity is the notion that people can’t be
trusted, and therefore, we must regulate them. I used to tell my colleagues when
we sat down to work things out to get to some governing principles. What are we
trying to do here? What is this about?

It’s about the well-being of the consumer, the household.
We work to eat. … That’s what we’re living for. So the object of our affection
must always be the consumer. It is not about protecting one competitor against
another. So define the law.

How much regulation do we need in an area of creativity
where people are providing service all over the place, in new ways, with new
devices?

You may be in the position of writing or administering the
law, but that doesn’t make you smarter than the people. I’ve heard colleagues
say, "Oh heck, I can’t vote that way. People back home won’t understand." And I
say, "How do you figure that they were smart enough to elect you, but too dumb
to understand the issues?"

We get in these offices, and we don’t have respect for real
people, their abilities and integrity. My prayer for America is that we have a
government that knows the goodness of our people. We are a good people, and we
are an able people.

If I know that as a public official, then I can restrain
myself. The world is not going to go under or go on the rocks if I don’t have my
hands on the levers. In fact, the ship may be better off without me. That’s
something you really have to work at.

There are a lot of people enthusiastic about Big
Government. I never understood that. My mother, bless her heart, raised me
right. Basically, her take was very simple: The government’s no damn good. Don’t
trust them.

I appreciate you letting me be here. I hope it’s been worth
your time. Thank you.

#####

Dick Armey is a former House majority leader and is co-chairman
of FreedomWorks, a grass-roots organization that promotes principles of limited
government. He gave the remarks shown above at a luncheon in Lansing hosted by
the Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in part is
hereby granted, provided that the speaker and the Center are properly cited.